Rumours started circulating early yesterday morning that a mid-size holiday company was on the brink of collapse. By noon, 50,000 customers of Holidays 4U had discovered that their trips to Turkey had vanished.

Although travellers booked with the failed tour operator should get their money back under the Air Travel Organisers' Licensing (Atol) protection scheme, refunds could take months. Meanwhile, other holiday companies have pushed up prices to take advantage of a spike in demand as families scrabble for replacement trips.

Around 12,800 Holidays 4U clients were abroad when the company collapsed. They are able to continue their holidays as normal; the Civil Aviation Authority (CAA) is organising "rescue" flights that will largely mimic the original schedule, with most passengers arriving back at the right airports at approximately the right times.

The CAA said yesterday that it was "working to ensure all protected Holidays 4U package holiday customers who are overseas can stay in their accommodation until they are due to travel home".

If hoteliers demand that holidaymakers pay again for accommodation, costs should be reimbursed by the CAA on their return home.

Brighton-based Holidays 4U specialised in budget trips to the Bodrum and Dalaman areas of Turkey. It also sold charter seats under the brand Aegean Flights (which has no connection with the scheduled Greek carrier, Aegean Airlines). Before its demise, the company assured customers that the flight-only programme was also covered under the Atol scheme.

Holidays 4U is the latest in a long line of failed companies specialising in cut-price packages and flight-only deals to the Eastern Mediterranean. Its slogan was "Bringing you the best of Turkey, only cheaper" – but in a summer where every mainstream tour operator is suffering from soft demand and increased costs, its prices were unsustainable.

Ian Oakley-Smith, the licensed administrator appointed to oversee the insolvency, said: "This is unusually early in the season, but it is difficult for us to know at this stage exactly why the company is insolvent."

The normal time for tour operators to fail is the autumn, when the bills from airlines and hotels are coming in, but cash for forward bookings is not. A collapse so early in August indicates how tough the mainstream Mediterranean travel trade is finding the summer. Costs are rising, largely because of the soaring price of oil, while customers are booking late and expecting cheap deals.

Shortly before the demise of Holidays 4U was announced, the Thomas Cook group announced that its chief executive, Manny Fontenla-Novoa, had stepped down. While the firm remains financially robust, its share price has halved in the past three weeks as City investors lost confidence in mass-market travel.